Americans Holding Unreported Funds in Overseas Accounts? NO! Say It Ain’t So!

OK, so it’s not really that shocking to learn that the wealthier of US citizens might be squirreling money away in Swiss bank accounts in order to avoid the pesky tax man. It’s one of those wink-and-a-nod secrets about which everyone knows.

But the news here is that the IRS is actually going after them. It started on July 1 with a US judge granting the tax collection agency the power to issues a summons to UBS for information about these secret accounts. This one summons reveled $20 billion in unreported funds.

I gotta say I like where this is going!

Section 1031 and Vacation Homes

Whether you call it another tax benefit for the wealthy or help for strapped real-estate investors, it’s worth taking note that the IRS has recently clarified their position on swapping vacation homes – you can do it now tax free.

There are the usual rules that specific times, percentages and percentages of time are required to qualify but what it boils down to is that chances are owners of multiple homes now have other way of transferring assets without having to get the tax man involved.

It’s May Fifteenth, Do You Know Where Your Rebate Check Is?

I only ask because the IRS has been sending the rebates to the wrong taxpayers. And it’s not just checks but direct deposits, too. 15,000 by one estimate.

I’ll give you a moment to let that sink in…



Why is this happening? The agency doesn’t really know, says IRS spokesman Kevin McKeon. But if the rebate schedule says that you should have already received your then McKeon suggests you visit IRS.gov or call the toll-free service Refund Hotline at 800-829-1954.

Oh, and if you happen to receive some else’s rebate the IRS would very much like it if you would please return it.

Sheesh!!!!

US Government Acknowledges Tax Credits Are Confusing and Difficult

This is one of those bits of news that engenders two distinct and seemingly incongruous reactions. The first is, "Well, duh!" Of course understanding and complying with the IRS vast number of rules and regulations. The other reaction is complete amazement that the tax collecting agency is actually acknowledging that the directions and regulations for at least one particular tax credit are confusing and could have bee presented in a clearer way.

The credit in question is the Hybrid Vehicle Tax Credit. The credit, which is designed to defray some of the cost of the more expensive hybrid technology and encourage growth of the industry, is different for each model and year of production and reduces each year of ownership. Also, neither the dealership that sells the car nor the manufacturer are obligated to provide the taxpayer with any information leaving up to her to research and determine the amount of the credit.

It's easy to see how this whole mess could get confusing. And the Treasury Inspector General for Tax Administration recently did a study where it was determined that the IRS might have done a better job setting the whole thing up. You can read all about it in the report The Complexity of the Law Makes Administering the Alternative Motor Vehicle Credit Difficult.

No Tax Rebate for Foreigners...or Their Spouses

Full Disclosure: I have a personal interest in this one as it directly affects my sister and her Ghanaian husband. They've been married for three and a half years and have two kids. While they wait for the interminable process of immigration to play out my brother-in-law works hard at three, yes three, jobs. He works seven days a week, all hours of the day and never complains. In fact he never seems to stop smiling. My sister works a full time job and they are raising four wonderful kids.

But for some reason the IRS decided that my brother-in-law doesn't deserve the stimulus/rebate check. Why, exactly, that is I can't fathom. It seems that it would be rather easy to check the records and see that he's worked steadily and contributed more than his fair share to society not to mention the tax coffers and deserves the rebate just as much as anyone.

But to add injury to injury it's now come out that my sister will likely be excluded from the payoff as well. I really don't know if they file jointly or not but if they do then neither one will receive their check.

Interestingly one of the groups of US citizens this greatly affects is members of the military who married foreign nationals while stationed abroad. While individuals in the government like to trumpet their support for the troops this is yet another example of policy saying otherwise.

More IRS Email Scams

I know I've covered this before but it's worth repeating, especially now. With the tax stimulus rebate checks due to start arriving in mailboxes across the US next week taxpayers are eager to get their money and unscrupulous spammers and phishers are willing to take it.

They do this with a flurry of emails with a varying degrees of believability. As I went through my emails this morning I had two. One opened with, "We are pleased to inform you that upon reviewing your fiscal activity, we have determined that you are eligible to receive a tax refund of $252.15."

That kind of specificity made me take another look although I knew that it was a fake.

There are a number of ways to spot a fake email.

First, the IRS does not email taxpayers. It's that simple. Do not believe anything that arrives in your inbox that alleges to be from the IRS. Think about it, have you ever given the IRS your email address? In the normal course of events most taxpayers haven't and the tax collecting agency most certainly does not have time to seek out this information.

Second, check the URLs. Most spammers have become sophisticated enough that they can create a fairly convincing "From" addressee but one thing they can't hide is the embedded URLs in their emails. How can you tell? Float your cursor over the hyperlinked text - the highlighted words that will take you to another website if you click on them - and look in the lower left hand corner of the screen. If you're reading your email on a web-based program the URL will appear. It will most likely not be to the address that it purports to be. For example: IRS.gov See?

Third, does the email ask for personal information? If you receive an unexpected email that claims to be from the IRS, your bank, or anywhere else and asks for any kind of information it is very likely fake.

Overall, remain skeptical.

As for those rebate checks and where yours specifically is, we here at IrsProblemsResolved.com know just as much as you do.

Where Can I Find IRS Tax Forms?

So you sit down to do your taxes. You’ve been putting it off for months and with less than two weeks left you decide it’s finally time.

You gather up that stack of “tax stuff” that’s been slowly growing since the first of the year and dive it. After getting everything in order and finally getting down to the numbers you realize that the IRS didn’t send you the right forms or perhaps didn’t send any at all. What now? You think that you once heard the post office keeps forms but you don’t want to drive down there and be wrong. Maybe it was the library?

Here are two quick and easy sources. If you have a printer hooked up to your computer you can go to the IRS Forms and Publications page of their site and print out what you need. Or if you can’t or don’t want to print your forms check out this handy IRS office locator. With it you can track down the nearest office to you where you can get the forms you’re looking for and even talk to an IRS employee if you need to.

Audit Triggers - Part 2

Yesterday I published a couple of likely triggers for an audit. As promised, here are a couple more:

High Income – Although a higher income should be considered an advantage under any other circumstance, considered from the perspective of prospective audits it is most certainly a disadvantage. And the chances of an audit jump up significantly with each income level. Past audits tell us that the chances of an audit for taxpayers making less than $100,000 is 0.93%. For incomes over $100,000 the chances jump to 1.77%, over $200,000 brings the odds up to 2.87% and over $1 million in income brings the chances of an audit to a whopping 9.37%!

Self-Employment – Because self employed taxpayers are constantly keeping an eye on their bottom line they tend to be aggressive at writing off expenses. While there are many legitimate reasons for doing so the IRS likes to verify these deductions.

While these are some of circumstances that may trigger an audit they do not necessarily guarantee one nor will avoiding them remove all possibility of one. The best defense against an audit is to always expect one. Taxpayers should make sure that their deductions are legitimate and reasonable. They should also keep well ordered records and receipts.

However never having to face an audit is certainly the best circumstance. Keeping these triggers in mind can help taxpayers reduce the risks of that happening.

Audit Triggers - Know what the IRS is looking for...

With the tax clock ticking down lots of people are finishing up their tax returns. A common question that comes up during this joyous time of year is, “How can I avoid an audit?” Fortunately for most taxpayers the question is far more common than an actual audit. Only around 1% of all taxpayers actually end up facing an audit.

Comforting as that fact is, it is in no way instructive. Knowing what is more likely to trigger an audit can go a long way to avoiding one. Avoiding these triggers will not guarantee that an audit will not occur but it will reduce the chances of one. While all of the reasons that the IRS launches an audit aren’t known, crunching the statistics of past audits does demonstrate some clear triggers.

High deductions – Any deduction that is proportionally high to the taxpayer’s income usually constitutes a red flag. Determining what’s high is the trick here. The IRS publishes an annual book, “Statistics of Income.” Although the book gives ranges for typical incomes some logic needs to be applied. If a taxpayer is at the lower end of a particular income range but claims the upper limits of deductions associated with that range then that deduction may still trigger an audit review even though the deduction is technically within the accepted limit.

Cash Income – Any profession that deals with a lot of cash, such as waiting tables, tends to spark the curiosity of IRS audit agents. One of the first things they compare in cases such as this is bank deposits vs. claimed income.

These are a couple of common triggers that can set off an audit. Tomorrow I'll share another couple of potential red flags. Remember, avoiding these doesn't necessarily guarantee avoidance of an audit but it can certainly reduce the possibility of one.

The IRS Wants to Hear from You

Got some advice for the IRS? They want to hear it.

The US tax collection agency is looking for citizens who want to give their input about how it does its job. To qualify prospective panelists will need to pass a criminal background search and be willing to commit between 300 and 500 hours per year. Oh, yeah, their taxes need to be up to date, too.

For more information check out www.improveirs.org or call 888-912-1227. The deadline is April 30.

Where’s My Check?

The first rebate check from the IRS likely surprised more than a few recipients. Even with all the press it got, did anyone really expect it to come through? I mean the IRS actually giving back money?!? It just didn’t add up.

But this time around is different. History proves that it can really happen and now that we’ve heard more than a few times from Washington to expect a check this year people are asking questions. They are starting to wonder exactly when their check will come, what they can do to make it come faster and how they can make sure that they are eligible.

Trust me; IRSProblemsResolved knows that these are the questions that people are asking because they’re asking us these questions. Fielding these queries has become a pretty regular occurrence here at the office.

So, it’s not with a little relief that I can now report that the IRS has set up a special phone number that taxpayers can call with questions about the 2008 stimulus package checks. The IRS announced that people can call (866) 234-2942 with questions about their checks. There is also information available at IRS.gov.

Other problems with the IRS like back taxes, threats of levies, wage garnishment, etc. are where we shine. If you’re facing these sorts of issues or have other problems with the IRS we’d be glad to talk to you about them. Contact us with your IRS questions here.

What’s Keeping You Honest?

Most people are honest and most honest people are that way for two reasons. First because they feel that being honest is the right thing to do. Second they are honest because they fear the consequences of getting caught being dishonest.

I suppose that that’s common sense but IRS decided to take a poll to make sure. They found that 84% of people believe that cheating on one’s taxes is unacceptable. But 54% said that they don’t cheat because of fear of an audit. Further 61% admitted that they accurately report their income because they knew that a third party like their employer or clients had already reported their income. But 87% said that personal integrity also played a role.

So, basically, we’ll cheat as long as we think we can get away with it and as long as we can feel good about ourselves while we do it. Sounds about right to me!

Love Letter from the IRS

I don’t know about you but whenever I go to the mailbox and see that I’ve received mail from the IRS my first thought is, “Great, what now?” My second thought is, “How much is it going to cost this time?” The answer to both of those questions is rarely good.

Well, that’s not necessarily going to be the case in the next few weeks. The IRS is sending out millions of letter to US taxpayers. These particular letters will be explaining when and how we can receive our chunk of the stimulus package.

A 7 Year-Old’s Tax Troubles

A boy in Carpenterville, Ill recently received a notice from the IRS informing him that he owed taxes on $60,000 worth of income. The agency also informed his mother that should could no longer claim her son as a dependent.

This is not the story of an enterprising child who started a wildly successful business in his parent’s garage; it’s a story about identity theft.

Shortly after the young man was born in 2001 his identity was stolen. His Social Security card wound up in the hands of Cirilo Centeno who used the information to obtain a truck, three separate jobs, gas and electrical service for his home, a credit card, unemployment benefits twice for a total of six months, and over $60,000 in pay and services.

Centeno’s court date is March 12.

Eleventh Hour Tax Law Changes Causing Trouble for Taxpayers

What happens if you don’t pay your taxes? The IRS comes after you, right? But what happens if you pay too much in taxes by missing some deductions that are due you? Nothing.

Deductions are up to you and your accountant. You can’t really blame the IRS for this reality; they’ve got their hands full with processing on-time taxes and dealing with deadbeats. But what if you don’t know about the deductions? This is what’s happened with some eleventh hour tax bills passed by Congress.

The new tax laws, designed to help the tax payer, are creating their own set of problems because they are getting passed so late in the game. When this happens the IRS doesn’t have time to publish their documents for a given year with the amendments on time. So they have to decide whether to delay the release of these documents or simply issuing them without the amendments. Either scenario is a headache for taxpayers and a nightmare for accountants.

What to do if you think that you might be eligible for one of these last minute deductions? Well, given the nature of the situation it’s difficult for individuals to keep up with the minutia of tax law. But the IRS allows tax payers to amend previous year’s taxes for up to three years. Check out the IRS’s amended tax returns for more information.

Is the IRS Unconstitutional?

They come around with almost the same annual regularity as Christmas or New Years – the arguments that the US tax system is illegal, unconstitutional or, one of my favorites, dependant on the voluntary participation of the tax payer.

This year the anti-tax/anti-IRS voices seem particularly loud as they rally around a couple of the more visible candidates for the Republican nominee for president – Ron Paul and Mike Huckabee. While Huckabee’s tax proposal might be a softer version of Paul’s slash and burn vision of the IRS, both have attracted the admiration of disgruntled tax payers of all stripes.

But under its current charter the IRS feels secure. With equal regularity although with perhaps a little less attention, comes the IRS’s rebuttal to these accusations. The Truth About Frivolous Tax Arguments is a fascinating read. It goes way beyond the “Oh, please” reaction that would be mine if addressing these arguments were my responsibility. The document meticulously examines and refutes the most common of these arguments.

IRS Playing Santa to the FedEx Drivers

Here’s the situation – FedEx, like many companies, likes to hire drivers on a temporary, part-time basis as independent contractors. Having workers under this status saves companies money in lots of ways such as vehicle maintenance, overtimes and in taxes. And when companies save money the stockholders are happy. Win-win, right?

Wrong, says the drivers. The workers’ voices are being drowned out in all the money-saving joy. When workers cost less that means that they receive less. All that money saved in denied benefits, vehicle maintenance and taxes has to be made up somewhere and that place is usually out of the workers’ pockets.

And when it comes to taxes you know that the IRS wants to get involved. Last week the IRS ordered FedEx to pay regular employee taxes for these workers that it had previously labeled as independent contractors. The back taxes and fines total $319 million for 2004 through 2006. Further investigation may result in more. FedEx promises to appeal the decision.

Mileage Deduction Increase for 2008

If you drive for a living you know how expensive it can be. Besides the obvious rising cost of gas there are other expenses to worry about like maintenance, tolls, parking and insurance. You might feel just a little less strain from these expenses next year because the IRS is raising the mileage deduction rate from 48.4 cents per mile to 50.4. Two cents isn’t a lot but every little bit helps.

Of course it wouldn’t be the IRS if there weren’t a list of exceptions and qualifications. In this case, the deduction doesn’t apply if you’ve used any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.

For more information check out IRS.gov.

Only Three Months of Tax Free Poker Left

The IRS recently cleared up some rules that had left poker players and tournament organizers scratching their heads. Previously it had been unclear whether poker winnings, especially the large pots that are awarded in tournaments, were reportable.

Now it’s clear - beginning March 4, 2008, the IRS will require all tournament sponsors to report tournament winnings of more than $5,000.

So, that means you have just over three months to rake in the winnings before they will be reported. Good luck!

‘Tis the Season to Give – Make Sure It Counts Next April

It is the time of year when a lot of taxpayers like to take the time to give something back. Whether you contribute money or property to your favorite charity, make sure that you are familiar with IRS regulations if you intend to claim a tax deduction.

In the first place, you need to know if the organization even counts. Some don’t. The IRS says that qualified organizations include, but are not limited to, “Federal, state, and local governments and organizations organized and operated only for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.” It’s best to check with the people that run the organization itself; they’ll know. Be sure to get the appropriate paperwork from them if the contribution is worth more than $250.

Time doesn’t count. While contributing your time to a charitable cause is certainly adminrable, it can’t count towards a tax deduction. Expense incurred can but not the time itself.

So, embrace the spirit of the season now. But just take a moment to review the IRS’s rules if you plan to claim deductions in April.

Does the IRS Owe You Money?

The nation’s tax collecting agency is searching for certain taxpayers. It seems that these citizens have moved or the IRS is having trouble reaching them at their current address. This is regarding the matter of a certain unreceived check and needs to be cleared up ASAP.

But names in the “Pay to the order of” section of these checks are the taxpayers’. These are refund checks that we’re talking about. This is a problem that the IRS encounters every year: undeliverable refund checks.

Although the checks only account for less than one tenth of one percent of all the refunds issued, they do represent and impressive $110 million in unclaimed money.

In their recent press release about their search, the IRS makes some suggestions for avoiding this problem in the future. First is to always notify the IRS and the Post Office when you have a change of address. Second is to set up direct deposit for refunds.

Could you be one of the taxpayers that the IRS is looking for? Check out the IRS’s “Where’s My Refund” page to see.

No Campaigning From the Pulpit

In case you missed it, there’s a prohibition against preaching about candidates. Churches and other 501(c)(3) nonprofits and charities aren’t allowed to back a candidate running for political office. They are able to take positions on issues but even that rhetoric needs to be limited.

In a recent public statement Commissioner of IRS' Tax Exempt and Government Entities Division, Steven T. Miller, said that he wanted issue this reminder now in light of the earlier than usual presidential campaigning.

Need more information? Check out the IRS’s Tax Information for Charities and Other Non-Profits page.

Squeezing the Hedges

Recent legislation known as pay-as-you-go or paygo requires that new spending produced by the US federal government be funded by new and equal income. Radical idea, I know, but if Congressional members need help getting their heads around it they could talk to, well, any average tax payer out there that learned how to do this a long time ago. In the abstract this is a nice idea; it’s time we teach the jerks some responsibility. But we still get that pork that our Rep promised us, right?

But the IRS officials have more immediate concerns with this new paygo structure. They know that the government will turn to them for the extra money. Caught between the Bush tax cuts and this new rule, coming up with the money is going to be a challenge.

One source of extra funding may be private equity and hedge funds. Watchdog groups and anyone with common sense have long suspected that there is a lot of untaxed money moving through the complicated machinations of off-shore accounts, under-the-table loans, and unreported income that appears to be common in these monetary devices. The IRS plans to do some in depth studies of these funds in search of new taxable sources. And no doubt the hedge fund managers are scrambling to defend their carefully arranged financial empires.

Smithers, release the lawyers!

That Depends On What the Meaning of the Word "Individual" Is.

Do you have to pay taxes? This isn't a libertarian vs. sane person question; politics has nothing to do with it. Under the current situation in the US do you have to pay taxes?

Well, according to Sherry Peel Jackson the answer is a shrug and a resounding "I dunno!"

The former IRS agent and CPA decided that she would find a way to not pay taxes. According to her she could found no clear, legal instruction that she should have to pay up. She did find that taxes are imposed upon "every married individual" but with no definition of the word individual, she just wasn't sure whether or not she was one.

If the definition of the word individual includes the phrase "common sense" I might have to agree with her.

Luckily the jury of her peers did have some common sense - and perhaps a little resentment that they had been paying taxes while Jackson wanted to bring in her $100K per year tax free - and found her guilty. She faces up to four years in prison.

Audits - Be Prepared

In a previous post we looked at the likely-hood of any one taxpayer facing an audit. While the odds are low, every US taxpayer should be prepared for the possibility of an IRS audit.

Anyone that claims deductions beyond the standard deductions should be prepared to defend their tax return. Self-employed worker, small business owners, anyone claiming investment losses or virtually any other financial circumstance beyond the usual salary minus standard deduction scenario should be prepared.

Taking deductions or claiming that certain expenditures are business expenses reduce the total taxes owed. The IRS expects make taxpayers to make such claims. Deciding what is a legitimate deduction or business expense is left largely up to the taxpayer and her advisors. Deciding whether to accept them is up to the IRS and, in the case of an audit, the auditing agent. Therefore surviving an audit depends on being prepared to defend the deductions taken.

Good record keeping is the key to being prepared. Save all receipts and keep them in an orderly way so that if an audit ever happens locating them will be easy. Keep records of all transactions that affect each year’s taxes – both income and deductions. Make sure that all transactions are clear, traceable and can be explained. Maintaining honest and straightforward financial records will offer most taxpayers the ability to survive an audit.

Will You Face an Audit?

Probably not.

It’s the dread of every US taxpayer – the IRS audit. Most citizens only have a vague idea of what an audit is and how to prepare for it. Everyone has heard nightmarish stories of audits – lost receipts, probing questions about deductions taken years ago, and, the worst, owing huge sums of back taxes. The audit has been called the financial equivalent of a rectal examine.

The odds of being audited by the Internal Revenue Service are really quite slim. Of 131 million returns received by the IRS for the 12 month period ending October 2005, only 1,216 were audited. But it’s a perpetual possibility for which everyone must be prepared.

Many taxpayers take the standard deductions and will never have to worry with the years of old receipts and financial records from the past. In fact if the IRS decides to take a look at the tax history of a citizen who has only taken standard deductions, chances are she will never know that she was investigated. The IRS agents will simply look at her past returns, see that she took the standard deductions, and move on to the next taxpayer.

Ron Paul Backs Down on IRS Position

In my last entry I promised to take a closer look at Ron Paul's position that the IRS should be shuttered. In a combination of promising to return the US's coffer-keeping to the perfection of a yesteryear that never actually existed and some really fuzzy math, Paul's website laid out an interesting if overly simplistic argument for getting rid of income taxes.

I planned to spend this month examining this position and exploring its feasibility from the perspective of political, economic, business, and international relations concerns. But that isn't going to be.

For whatever reason, Paul's site has removed that language and replaced it with some mealy mouthed complaints about high taxes. I'm fighting the temptation to take credit for this apparent reversal of positions in the Paul camp by threatening to put his plans for closing the IRS under a microscope.

RIP IRS?

Most Americans see the IRS and paying taxes as a necessary burden of living in society; most but not all.

Ron Paul, the libertarian candidate for the Republican presidential nomination, has garnered a lot of attention lately. His primary claim to fame has been his firm stance against the increasingly unpopular US occupation of Iraq. While this position has brought him support from voters of all political stripes it is some of his other positions that many find rather jarring.

One of these is his firm belief that the US government has no need for and should do away with the IRS. In an age when no working Americans can remember not paying an income tax to the IRS this can seem startling and a little exciting. Paul’s position, as laid out at his website RonPaul2008.com, is that every working American should bring home 100% of what they earned.

There’s a seductive quality to his position. During the first one hundred plus years of the Union, Americans paid no income tax to the Federal government. To varying degrees most of the US treasury came from tariffs. It worked then, Paul argues, and it can work again.

But a deeper look at this proposal reveals problems from many perspectives - political, economic, business, international relations, etc. Over the coming weeks, I’ll take a closer look at the potential impact of shuttering the IRS.

More On Tax Refund Scams

A few weeks ago I mentioned email scams that were attempting to imatate the IRS in order to trick US taxpayers into turning over valuable persanol information. Well, today I actually received one of these for myself. I though that I'd share it with you so you'll know what to be on the lookout for.

The sender listed on the message was "Internal Revenue Service (IRS)." That's certainly enough to get one's attention. When I looked closer, though, that actual email address had nothing to do with the IRS.

The subject line was "Tax Refund!" An exclamation point from the IRS? There's another tipoff that this is phony.

The body of the message read as follows:

After the last annual calculations of your fiscal activity we have determined that you are eligible to receive a tax refund of $116.40. Please submit the tax refund request and allow us 6-9 days in order to process it.

A refund can be delayed for a variety of reasons. For example submitting invalid records or applying after the deadline.


To access the form for your tax refund, please:
Click Here


Thank you for your patience in this matter.

Regards, Internal Revenue Service

Please do not reply to this e-mail as this is only a notification. Mail sent to this address cannot be answered.



© Copyright 2007 Internal Revenue Service U.S.A.

There was only one link in the message and it was on the words "Click here." When I floated my cursor over it, the web address had nothing to do with the IRS. Clearly this was a fake.

Dear IRS,

Roni Deutch has written an open letter to the IRS urging them to update the allowable standards for living expenses. According to the press release, she highlights two problems with the standards.

The first is that the IRS uses statistical data that is two years old to determine the amount of the expenses. So taxpayers are buying whatever it is that is on the allowable list in today's dollars but they can only deduct these items' worth in the dollar of two years ago. This problem is exaggerated this year because the IRS decided not to compile new data; they are using the same numbers used last year.

The second problem she identifies is that the IRS apparently uses a national standard to determine the amount of these expenses. Deutch argues that some taxpayers live in communities that are more expensive than the national average and these taxpayers should be allowed a greater discount.

She asks that the IRS correct these problems and suggests that the US Treasury department reprimand the IRS for allowing them to persist.

If this works I may have to start putting my own letter together.

Hybrid Vehicle Tax Credit

Buy a car, save the planet, right? Political concerns aside everyone can agree that spewing a little less carbon into the atmosphere is a good thing. Even the IRS agrees with that. In fact they offer a tax credit for buying a hybrid. But don’t go thinking that claiming this credit is going to be a simple process. Attempting to claim it isn’t that hard, but actually receiving it may seem to be as much a matter of luck as it is anything else. That isn’t entirely the case; knowing how the IRS arrives at the amount of the credit will go a long way toward increasing it.

It is more complicated than simply subtracting the standard hybrid fuel deduction from the total tax. In the first place, there is no standard deduction; it is a credit that is calculated based on a number of complicating factors. In an article recently published at IRS Problems Resolved the qualifying factors for this deduction are described. The article can be found here.

Though most car buyers are probably considering more than the possible tax credits when they choose alternative vehicles it’s good to know that the government is willing to help a little. But it takes more than simply choosing a hybrid to get the maximum tax benefit. Knowing which models will bring the most benefit is important and can save the taxpayer quite a bit of money come tax season. So check out Hybrid Vehicle Tax Credit.

Internet Scammers Imitate IRS

I’ve mentioned issues with the IRS’s computer system being potentially vulnerable to hackers - IRS Criticized and Hackable IRS. But a perhaps more insidious problem for taxpayers and computer users lies in sites and email scams that are designed to fool the average citizen into thinking that he or she is dealing with the actual Internal Revenue Service.

The scams and tricks these internet pirates use are pretty familiar to anyone who’s been paying attention to such issues. One reported on phillyburbs.com describes a site designed to look like the IRS’s. It doesn’t take too much skill to steal logo designs and general web layouts today. Victims are often lured to these types of sites through an email, usually one that offers money. The IRS is a particularly good entity to base this scam on because most US citizens have received some sort of refund from them at some time in the past and would like to do so again. Once the victim lands on the fake webpage they are asked for such things as social security numbers, bank accounts, and credit card numbers – all things that the scammers can use to steal money from the victim.

Another scam, described on MSNBC’s website, tells the victim that the IRS is willing to pay them for their opinion. It doesn’t take a particularly suspicious mind to see through that one.

There are a few rules of thumb that you can exercise to protect yourself from such scams that appear to be from the IRS or anyone.

First, always consider the source. On the internet the source is the URL. If the website you’re looking at doesn’t have irs.gov in the base URL, chances are it’s a scam.

Second, don’t trust the “from” email address. It’s pretty easy to fake that line in an email. If there are hyperlinks in the email – blue text that you can click on to go to a website – DO NOT click on it. Rather float your cursor over it and look in the lower left hand corner of your screen. There you will see the real URL source of the email.

Third, always be skeptical. Even if the email and website seem to check out, it’s better to be safe than sorry. Open a fresh browser and try to find the same information at the main IRS page - http://www.irs.gov/.

Fourth, seek professional help. I’m not suggesting that you have mental health issues. I don’t know you. I’m suggesting that you seek out an accountant or other financial professional that you trust and ask them if the claims you’re considering are legitimate.

Fifth, report everything. Hackers, scammer, phishers and other internet pirates will always be with us but the more that get reported, the fewer victims will be created.

IRS Criticized

“IRS Criticized.” Nothing new there, right? But this time the criticism came not from disgruntled taxpayers or harried acountants but from the Treasury Inspector General for Tax Administration (TIGTA). In two recent reports, the TIGTA chided the IRS in two distinct areas.

The first report questions the IRS’s projected savings. The IRS has estimated that it can save $160 million on taxpayer services in 2006 and 2007 but, the TIGTA says, these estimates can’t be demonstrably supported. This creates a fear that IRS cannot provide sufficient services as they cut resources in order to meet these savings goals.

The TIGTA second report criticizes the IRS for continuing to fail to provide adequate protection of taxpayer information. Though security measures have been improving, there are still areas of concern. Specifically the report referred to IRS employees’ changing their passwords for unauthorized callers.

No More Mister Nice-Guy

Remember the “Kinder, Gentler IRS” of the 90s? Well, you can forget about that! The complaints about IRS agents with the humanity of an enraged mountain gorilla may still be coming in but these days they fall on deaf ears.

With a $345 billion gap between taxes owed and taxes paid in 2001, the IRS has been beefing up their collection department. They increased spending for it by 13% in 2006 when compared to 2004. Another way to look at this is that of the IRS’s $11.6 billion dollar operating budget, 63% goes to collection and enforcement efforts.

And taxpayers are starting to notice. Accounting firms are reporting that word of mouth is driving delinquent payers to their offices for help because they heard from friends and colleagues about the IRS’s increasingly aggressive tactics.

C'mon, IRS, Don't Be So Shy!

A couple of Senators want the IRS to speak up a bit about one of it's benefits.

In a letter to Acting IRS Commissioner Kevin Brown Senators Max Baucus (D-MT) and Chuck Grassley (R-IA) asked that the Saver's Credit receive a bit more publicity.

The Saver's Credit is a dollar to dollar tax deduction - up to $2000 - available to American tax payers that make contributions to a retirement account.

The Senators acknowledge that many taxpayers have taken advantage of this savings incentive but millions more haven't, most likely because they simply don't know about it. The lawmakers would like the IRS to make this deduction better known to the American taxpayer through a variety of measures, including adding a specific line for it to the 1040EZ form.

The Hackable IRS?

About a year ago the General Accounting Office came out with some concerns about the security of the information held by the IRS.

Yes, take a moment and let that sink in; the information that the IRS was holding about you – which is basically everything, right? – was found to be at risk. These concerns included things such as access controls to computer network management, user account security, file permissions and logging and monitoring of security related events. 81 such worrisome little details in all.

But that was a year ago and the GAO communicated its concerns to the IRS. Surely in a year these problems should have been cleared up, right?

Wrong. How does half sound to you? In a review summarized here the GAO found that the IRS has resolved 41 of the issues that they identified.

I wonder; how the IRS would take it if we only paid half our taxes? I’m just asking…

IRS Plans Random Audits

So, you’ve done everything right and completely above board on your taxes. You even rejected some of your accountant’s suggested deductions because they seemed a little close to the edge. Nothing, you told yourself, to raise any flags with the IRS. The money lost over a deduction or two was worth knowing that you wouldn’t face an audit.

Well, things have changed and even the most studiously honest tax returns may face review. The IRS is bringing back a controversial audit lottery that will randomly target taxpayers. Apparently no groups will be given special attention and no one is exempt from being possibly selected.

The first bunch of 13,000 tax payers will be selected from various income categories this autumn and reviews will commence in October.

Is there anything that you can do to prepare? Not really. Some audits will be carried out without the taxpayer even being aware that it is happening. If the IRS is able to confirm the return with their records then the investigation will stop. But most cases are expected to result in some face to face time with the taxpayer.